Heating oil prices rocket above $4

With temperatures this past week starting to hint at the arrival of summer, Cape Codders have not had much cause to turn their thermostats up.

But even as the region heads into the season of dropping demand, the price of heating oil continues to soar, hitting an average of $4 per gallon on the Cape this week, according to a Times survey of area dealers.

However, for the past two years, the surging price of crude oil has continued to drive the cost of heating oil higher throughout the summer.

"That does go against conventional wisdom," said David Hinton, petroleum industry analyst for the federal Energy Information Administration. "The rise in crude oil prices is definitely the main driver for the rise in heating oil prices."

The average price of heating oil from a full-service dealer in Massachusetts, as tracked by the state Division of Energy Resources, has jumped more than 22 percent in the past three months, from $3.29 per gallon at the end of January to $4.03 this past week.

"That's a historic number," said Michael Ferrante, president of the Massachusetts Oilheat Council, a Boston-based industry trade group. "It's never been at $4 a gallon."

Over the same period in 2007, heating oil prices rose only 7 percent in the state.

Though the cold weather is all but over, the recent surge in prices may have a lingering effect on households that were already struggling to pay their heating bills this winter.

Many low income households work out payment plans with their oil providers, allowing consumers to pay for their winter heating over the course of several months, explained Mark Wolfe, executive director of the National Energy Assistance Directors' Association in Washington, D.C.

With the sharp increase in prices over the past few months, some families could find themselves barely done paying for last winter's fuel by the time the cold weather rolls around again.

"There will be many people paying throughout the summer and into the fall," Wolfe said. "When prices are this high, that strategy doesn't work at all."

Nor are the high prices a boon for heating oil dealers, Foster explained.

All dealers, he said, pay approximately the same wholesale price for their oil.

When dealers price their product for retail sale, they calculate their profit as a certain number of cents per gallon sold rather than as a percentage mark-up, he said. Therefore, the dealer makes about the same amount of money for selling 100 gallons of oil whether the price is $3.50 per gallon or $4 per gallon.

In 2006, according to the Energy Information Administration, for each dollar in the retail price of a gallon of fuel oil, about 60 cents paid for the crude oil, 16 cents paid for refining and 24 cents paid for distribution and marketing costs. This breakdown varies slightly from year to year, but remains similar, Hinton said.

As the summer continues and temperatures continue to rise, will low demand eventually push prices down?

No one seems to know for sure, but few are optimistic.

"My feeling is that if worldwide demand stays as high as it is these prices probably will stay up there," Foster said.